Saudi Arabia finances the Vision 2030 plan from the debt market

reportedAramco, noted that this withdrawal is the second for the Kingdom of Saudi Arabia since July. Including these recent bonds, the total issuance of Saudi bonds this year has reached about 50 billion dollars, which shows that the Vision 2030 program is expensive.

Bloomberg reported this week the Saudi Arabian government’s total exposure to bond markets through its sovereign wealth fund. According to data compiled by Bloomberg, Saudi Arabia’s private equity fund has issued a total of $50 billion in bonds this year, both in the form of corporate and sovereign debt. It is also likely to issue more debt by the end of the year as it becomes one of the biggest players in the bond market internationally.

This high amount of debt is all due to the commitment of the government of this country to the implementation of Vision 2030. Vision 2030, which is the idea of ​​the Saudi Crown Prince, aims to diversify the Saudi economy and distance the country’s economy from oil. But to realize this vision, the kingdom relies on oil revenues. This situation is similar to the situation in England, which wants to fund its overseas oil and gas transportation with taxes collected from oil and gas operators.

When oil prices were high, the 2030 vision had a lot of financial resources. Now that prices are chronically stagnant due to algorithmic trading and the conflict with China’s demand growth, the Saudi Arabian government is facing a liquidity shortage, and the debt market is the fastest solution to cover this shortage.

According to the report of the National Debt Management Center of Saudi Arabia, the total debt of the kingdom at the end of September was 308.7 billion dollars. has arrived Of this total, 183.7 billion dollars was domestic debt and the remaining 125 billion dollars was related to foreign debt. Compared to the US debt, this amount is insignificant. But compared to the level of Saudi Arabia’s debt in 2019, this increase is noticeable: in 2019, Saudi Arabia’s debt reached 180.8 billion dollars.

It seems that the leadership of Saudi Arabia is determined to implement the Vision 2030 plan even if it has to endure certain adjustments, and in this regard some projects due to lack of economic logic have been canceled For example, in 2018, the Saudis canceled a $200 billion solar energy project that Riyadh was supposed to jointly implement with Japan’s Soft Bank. This project was supposed to be the largest solar energy project in the world, but its profitability was not guaranteed, so the plans changed.

It seems that the metropolis under construction Neom (Neom) but still remains among the 2030 vision projects. This 500 billion dollar smart city with a low-carbon energy ecosystem is the flagship project of Vision 2030. Although the price of construction of such projects does not go down along with crude oil standards, and this issue has increased the willingness of Saudi Arabia to borrow.

Early this year, the International Monetary Fund warned of Saudi Arabia’s budget deficit, saying the kingdom needs oil prices above $96 a barrel to meet its spending budget. keep This is despite the fact that the price of oil has not even reached 90 dollars and it seems unlikely that it will witness such a price in the near future. This means that Saudi Arabia will continue to borrow next year and continue diversifying its economy; With the difference that currently diversification will be financed by loans until oil prices begin to recover to more suitable levels.

Some argue that whatever Saudi Arabia does in terms of production, prices will not go much higher. In fact, the daily reduction of production 1. Saudi Arabia’s self-imposed million barrels has not really had a favorable effect on prices due to the focus on Chinese demand among traders, and global supply would have to fall much further to lower oil prices.

The problem is that Saudi Arabia is losing market share due to its production control. This is a very serious puzzle; Going into debt to finance Vision 2030 is not an optimal option, nor is it possible to completely cancel the program after spending so much money on it. Perhaps there is a middle way that the Saudis can follow without drowning in debt and remaining dependent on oil revenues to finance public spending.